Investing money you're saving for a house
My husband's new job is a transfer and we are relocating from Massachusetts
to Ohio. We sold our primary residence for $400,000. We are planning
to rent an apartment in Ohio, retire in five years, return to Massachusetts
and purchase a new residence. We could buy a new home sooner if
housing prices go down.
I am considering putting all $400,000 in four, one-year
CDs earning about 5.5 percent. Should I be concerned that only $100,000
is FDIC insured? Is it safe to open a high rate certificate of deposit
online? I'd welcome any other suggestions you might have on this
-- Alex Accumulate
It's so easy to work around the constraints of the FDIC insurance
requirements that, in my mind, there's no particular reason not
to have your deposits FDIC-insured. For example, a joint account
at a bank can give each of you $100,000 in insurance coverage, assuming
you have no other insured deposits at that bank. That means you
could have $400,000 in coverage with two $200,000 joint accounts,
as long as the two accounts are at different banks.
The FDIC guide, "Insuring
Your Deposits," has more information about deposit insurance.
(Don't forget that National Credit Union Share Insurance Fund, or
NCUSIF-insured, shares at a credit union are also backed by the
full faith and credit of the United States government.)
Bricks and mortar don't make a bank safe. Focus instead
on the bank's safety rating. Bankrate publishes its Safe
& Sound and CAEL ratings for banks, so you can see how a
bank stacks up before sending it your money. Shop CD
rates on Bankrate, and don't forget to check the bank's rating.
Another choice for your investment is a CDARS account,
the Certificate of Deposit Account Registry Service. It's a CD product
offered by select financial institutions that lets you have up to
$25 million in FDIC insurance coverage while maintaining one banking
relationship. A Bankrate feature, "CDARS:
An easy way to beat $100,000 FDIC limit," has more information
I think your decision to keep your house money in
insured CDs is a smart move, given your short investment horizon
and uncertain timing as to when you would need the money. Don't
forget to learn about each CD's early withdrawal penalty before
investing. You don't want to lose that good yield by paying withdrawal
To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & investing" or "money."